Question

Which of the following is true of variances? a.Unfavorable variances occur whenever actual prices or actual usage of inputs are greater than standard prices or standard usage. b.Favorable variances occur whenever actual prices or actual usage of inputs are greater than standard prices or standard usage. c.Unfavorable variances are always credits. d.Favorable variances are always debits. e.None of these choices are correct.

Answer 1

Answer:

A

Explanation:

Variance analysis is a business management tool used to investigate the difference between a budgeted , planned , standard cost or quantity and the actual amount incurred.

Variance can either be favorable (positive and beneficial ) and unfavorable (negative and non beneficial )

Unfavorable variance occur in the situation where the actual prices or actual usage of inputs are greater than the standard or budgeted value.

The implication here is that there will be a deficit in the envisaged profit as the cost of production is now greater than what was planned for the production

Answer 2

Answer:

B) Favourable Variances occur whenever actual prices or actual usage of inputs are greater than standard prices or standard usage.

Explanation:

Variances refer to the difference between actual and standard or budgeted costs. Standard cost is also referred to as budgeted cost. Budgeted costinh can be used by a food nutritionist to determine the food quantity he can cook as well as the ingredient amount which consists of the budgeted costs and the actual cost of preparing the food. Budgeted costchas a major advantage which is its ability to determine the pricing policy even before the product or service is delivered. When favourable or unfavourable variances are mentioned, it refers to the greater of budgeted or actual price or quantity. Favourable goes with a greater actual price or quantity while unfavorable or adverse goes with a greater standard price or quantity.